Wall Street to plummet as Trump tariffs decimate dollar

The dollar, oil and world stocks all fell on Thursday after President Donald Trump’s new U.S. tariffs raised fears of a global economic recession. This led investors to look for safe haven assets such as bonds and the Japanese yen.

The new 10% baseline tariff on imported products, plus the eye-watering tariffs that Trump imposed on dozens countries he claimed had unfair trade barriers, left traders frightened by their severity.

S&P 500 futures and Nasdaq's futures both fell 3.4% and 3.9% respectively ahead of what is expected to be an unsettling start in the United States. Dollar's 2% drop was heading for the worst daily loss since November 2022, and the toughest start of any year since 1995.

Brussels and other capitals expressed outrage over the new reciprocal 20% levy imposed on the EU 27-country bloc. The bourses in Europe fluctuated between 1.3% and 2.6% declines.

Tokyo's worst week since nearly two years was in Asia, which saw some of the most severe tariffs. Tokyo fell 2.7%. Vietnam was hit even harder.

JPMorgan analysts said that the tariffs are "significantly higher" than what the worst-case scenario predicted.

Fitch, a credit rating agency, warned that they could be a game-changer for the U.S. economy and global economies. Deutsche Bank said it was a moment "once in a life time" which could reduce U.S. economic growth by between 1%-1.5% this year.

Olu Sonola, Fitch's director of U.S. Economic Research, said that many countries would likely be in a state of recession. If this tariff rate is maintained for a long time, you can forget about most forecasts.

Fitch lowered China's credit ratings shortly after, citing steep U.S. import tariffs.

The rush for ultra-safe government securities that guarantee income has driven U.S. Treasury rates down to 4%. Germany's 10-year yield - the European benchmark borrowing rate – fell by 8.5 basis points, reaching 2.64%.

The new import taxes will be the highest in a century in the largest economy in the world. In the event that they trigger recessions, it is likely that central banks will cut interest rates around the globe, benefiting bonds.

Wall Street braced itself for a brutal beating on Thursday.

Apple's stock dropped 6.5% due to the tariffs imposed on China, the country where it does most of its manufacturing. Amazon.com fell over 5%. Microsoft dropped 1.8%. And AI poster child Nvidia dropped 3.5%.

This comes after the worries about tech giants have risen to the point where trillions of dollars have been wiped from their books this year.

Nigel Green is the CEO of deVere Group, a global financial advisory firm. He said: "This is what you do when you claim to supercharge the economic engine of the world."

CHINA FOCUS

Trump's tariffs were particularly harsh on Asia. China received a reciprocal tariff of 34%, Japan 24%, South Korea 25 % and Vietnam 46%.

In response, Vietnamese stocks fell 6.7% and Nike, Adidas, and Puma who all rely heavily on Vietnamese and other Asian producers were smashed by as much as 10 %.

Investors sold exposure to global growth as the risk-sensitive Australian Dollar also fell.

Brent, which is a proxy of economic activity, fell as much as 4%, pushing it back below $72 per barrel. It's on track to have its worst day this year.

The gold price reached a record-high of $3,160 per ounce but then slowed down. Meanwhile, the Japanese yen rose more than 1.5 percent to 147.01 dollars as traders sought safety outside of the U.S. Dollar.

The Swiss Franc, another safe haven currency, reached its highest level in four month as the euro soared 2% to $1.10.00

Ursula von der Leyen, EU chief, said that the consequences would be disastrous for millions of people in the world if the talks with Washington fail. She added that the 27-member EU was prepared to strike back if the talks failed. "Uncertainty spirals and will trigger the rise of more protectionism."

China's currency remained relatively stable, with the yuan dropping only 0.4% in spite of tariffs on Chinese exports exceeding 50% and Vietnam being hit as a result.

The Chinese economy is large and there's a hope that Beijing will support Hong Kong and Shanghai stocks. Losses in Hong Kong were limited to 1.5%, and Shanghai losses to 0.5%.

George Saravelos, a Deutsche Bank strategist, says that the key focus in the coming days will be whether the dollar continues its decline and how Europe and China may respond.

He warned that "given the dramatic nature" of the moves the dollar was at risk of a wider confidence crisis.

(source: Reuters)